RESEARCH

Q1 2016INVESTMENT MARKET

Q1 2016 exhibited the lowest quarterly value on record of the volume of purchase transactions. Institutional investors were passive due to the volatility of the Russian national currency, lack of quality assets, as well as the limited financing possibilities of banks.

An additional constraint of market activity was the uncertainty of the economy recovery perspective. Market participants initially expected rapid growth after hitting the bottom in a similar way to 2008–2009 crisis period, but now the recovery prospects are less optimistic.

The volume of transactions in the Moscow region has amounted to only $150 million – the lowest quarterly level since 2006. The share of transactions in regional cities was 32% ($80 million), where not a single transaction was completed in the same period last year. However, it is too early to highlight an increase in interest to investment assets outside the Moscow area. Thus, only few transactions were closed in January–March 2016, some of them were disposed by tender or sold by previously announced portfolio sale.

Commercial real estate market has experienced a 2 times transactions volume drop (compared to Q1 2015) to $230 mln in Q1 2016

$230mln

$

COMMERCIAL REAL ESTATE TRANSACTION VOLUME IN Q1 2016

INVESTMENT MARKET

TRANSACTION VOLUME DYNAMICS IN TERMS OF THE CAPITAL INVESTED

TRANSACTION VOLUME DYNAMICS IN TERMS OF THE SEGMENT

Retail

Hotel

Warehouses

Offices

Russian investors

Foreign investors

Nat capital outflow

INVESTMENT MARKET | Q1 2016

0

1

2

3

4

5

6

7

8

9

10

2008 2009 2010 2011 2012 2013 2014 2015 2016F

0

2

4

6

8

10

bln $

bln $

bln $

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

-200

-150

-100

-50

0

50

100

150

Source: Knight Frank Research, 2016

47%17% 22%

34% 29% 14% 39% 20% 14%

53%

83%

78%

66%

71%86%

61%80% 86%

In the current environment investors are interested in already existing facilities with stable rental income. In turn, the volume and number of purchase transactions for further redevelopment has dropped: the decline was 80% against Q1 2015 and 93% against Q1 2014.

With a lack of economy advance Q1 2016 indicated further increase of overdue loans volume.

Building sector is reported to be one of the leading in terms of overdue credits volume.

Furthermore, a number of developers asking for loans restructuring is growing.

INVESTMENT VOLUME AND AVERAGE TRANSACTION SIZE DYNAMICS

Average transaction sizeTransaction volume, Moscow region

Transaction volume, other regions

VOLUME OF CREDITS ISSUED TO CONSTRUCTION COMPANIES AND OVERDUE CREDITS VOLUME DYNAMICS

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

Credit volumeOverdue credit volume

-30%

16,229 11,212 4,005 3,430 2,948 2,864 2,071 1,809 1,499 1,042

880 730 697 570 493 396 277 245 230

16 229

EUROPEAN COUNTRIES INVESTMENT VOLUME COMPARISON

Change compared to Q1 2015Real estate investment volume, bln $

UKGermany

FranceSweden

NetherlandsItaly

SpainNorwayFinlandIreland

DenmarkPoland

SwitzerlandCzech Republic

BelgiumPortugal

AustriaRomania

Russia

INVESTMENT MARKET

-43%-36%

-59%-8%

-20%-36%

-46%-46%

+135%-29%

-33%+59%-61%

-53%-33%

-50%+68%-66%-56%

INVESTMENT MARKET | Q1 2016

Source: Knight Frank Research, 2016

0

20

40

60

80

100

120

140

0

200

400

600

800

1,000

1,200

1,400

Q1 2012 Q1 2013 Q1 2014 Q1 2015 Q1 2016

mln $

trln rub.

mln $

64%

84%98%

100%

61%

36%

16%

2%

33%

OFF

ICE

MAR

KET

Office market investment volume, bln $GDP growth, %

bln $

0

1

2

3

4

-10

-8

-6

-4

-2

0

2

4

6

8

10

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

%

OFFICE SEGMENT INVESTMENT VOLUMES AND GDP GROWTH DYNAMICS

2,500–5,000 $/sq m

120,000–300,000 rub./sq m

80,000–200,000 rub./sq m

Class A

RENTAL RATES IN THE MAIN BUSINESS DISTRICTS OF MOSCOW

SALE PRICE

PRIME YIELD

1,200–3,200 $/sq mClass B

Class A

Class B

11.0–12.0%

10.5–11.0%

650–900$

20,000–30,000

18,000–20,000

600–80022,000–30,000

$

550

25,000

$21,000–35,000

Rental rates

$/sq m/year (triple net)

rub./sq m/year (triple net)

Central business district(Garden Ring)

Kremlin district

Leningradskoe direction

Belorusskiy business district

Moscow-City

Paveletsky business district

South-Western direction600–85025,000–30,000

$

600–85025,000–30,000

$

Despite a number of office investment deals negotiating in Q1 2016 no investment transactions were closed in the Moscow region. Market has experienced a similar situation a few times on a developing stage.

However we expect investments in office real estate segment to reach $1.5 bln in 2016 (30% increase compared to 2015)

INVESTMENT MARKET | Q1 2016

Source: Knight Frank Research, 2016

RENTAL RATES IN SHOPPING CENTERS OF MOSCOW

THE DYNAMICS OF INVESTMENT IN RETAIL MARKET OF RUSSIA AND CONSUMER CONFIDENCE INDEX (CCI*)

RETAIL MARKET

* CCI is an indicator designed to measure consumer confidence, which is defined as the degree of optimism about the state of the economy that people express through their consumption and savings.Determined on the basis of quarterly surveys by Rosstat in all regions of Russia, CCI is the relative value of the number of positive and negative responses from the total number.

Retail investment volumeConsumer Confidence Index

Hypermarket (>7,000 sq m)Rental rate: 0‒10,000 rub./sq m/yearThe share paid based on turnover: 1.5‒4%

White & Brown (1,300–4,000 sq m)Rental rate: 4,000‒12,000 rub./sq m/yearThe share paid based on turnover: 2.5–4%

Sporting goods (1,000–6,000 sq m)Rental rate: 0‒10,000 rub./sq m/yearThe share paid based on turnover: 8‒10%

Goods for children (1,000–2,000 sq m)Rental rate: 6,000‒15,000 rub./sq m/year The share paid based on turnover: 8–15%

Apparels (400–1,000 sq m)Rental rate: 0‒30,000 rub./sq m/yearThe share paid based on turnover: 4‒12%

Footwear (300–500 sq m)Rental rate: 0‒35,000 rub./sq m/yearThe share paid based on turnover: 7–12%

Entertaiment (1,000–4,000 sq m)Rental rate: 0‒6,000 rub./sq m/year The share paid based on turnover: 10‒13%

DIY (>5,000 sq m)Rental rate: 4,000‒6,000 rub./sq m/yearThe share paid based on turnover: 4‒9%

* Commercial terms discussed during negotiation process

PRIME YIELD

10.5–11.0%

-35

-30

-25

-20

-15

-10

-5

0

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5bln $ %

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

INVESTMENT MARKET | Q1 2016

Source: Knight Frank Research, 2016

PRIME YIELD

12.0–13.0%

INDUSTRIAL SEGMENT INVESTMENT VOLUME DYNAMICS

WAR

EHO

USE

MAR

KET SALE PRICE

40,000–45,000

NORTH

NORTH-WEST

MKAD

NORTH-EAST

EAST

WEST

SOUTH-WEST

SOUTH-EAST

SOUTH

Moscow

RENTAL RATES AND VACANT SPACE IN TERMS OF DIRECTION

4,000–4,500 4,000–

5,000

2,800–3,500

3,000– 4,300

3,700–4,500

4,300–4,800

4,000–4,700

4,000–4,800

4,000–5,000

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

bln $

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F

Vacancy rate

0–5%

5–10%

10–15%

over 15%

Asking rental rates, rub./sq m/year

rub./sq m

PNK-Chekhov 3 and PNK-Severnoe Sheremetyevo investment transaction was the largest in Q1 2016, as well as the first transaction closed with Mddle-Eastern investor.

INVESTMENT MARKET | Q1 2016

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